A Texas-Sized Hole in the Betting Landscape

  • click above & share!
    X
  • click above & share!
    X


  • click above & share!
    X
  • click above & share!
    X

Anyone who’s driven through Texas knows it’s a huge state – roughly 800 miles from east to west and the same distance from north to south. Any horseplayer in Texas who wants to make a legal wager also knows the pari-mutuel windows are few and far between: four horseracing tracks (plus another on the way in Amarillo in 2014) and a couple of dog tracks. There are no off-track betting sites and, as of last week, no advance-deposit wagering.

I remember the excitement and enthusiasm Texans demonstrated in the late 1980s and early 1990s when pari-mutuel racing was legalized and made its return to the Lone Star State. The grand openings of the state’s three Class 1 tracks – Sam Houston Race Park in Houston, Retama Park in San Antonio, and Lone Star Park in Dallas/Fort Worth – were met with tremendous optimism. Houston, San Antonio and Dallas are in the top 10 U.S. cities by population and three others (Austin, Fort Worth and El Paso) are in the top 20, so the state has the critical mass to succeed at just about anything.

Texans love horses, and many of them love to gamble.


But the Texas legislature has made it very difficult to bet – at least legally. It has not supported efforts to allow off-track betting and, while many other states have authorized advance-deposit wagering or allowed it to be conducted under the guidelines of the federal Interstate Horseracing Act, the Texas Racing Act enacted in 1986 states that “wagering may be conducted only by an association within its enclosures.”

During its 82nd session in 2012, the Texas legislature clarified the Texas Racing Act to include the following language: “A person may not accept, in-person, by telephone, or over the Internet, a wager for a horse race or greyhound race conducted inside or outside this state from a person in this state unless the wager is authorized under this act.” And: “Except as provided by this section, a person may not place, in-person, by telephone, or over the Internet, a wager for a horse race or greyhound race conducted inside or outside this state.” And: “A person who is not an association under this Act may not accept from a Texas resident while the resident is in this state a wager on the result of a greyhound race or horse race conducted inside or outside this state.”

Before that law was passed, several ADW companies were taking bets from Texas residents on out-of-state races. All the ADW companies except one gradually pulled out of Texas, however, after receiving a cease and desist letter from the Texas Racing Commission, with TwinSpires.com being the lone exception. Last week, when a federal judge ruled against TwinSpires and its parent Churchill Downs Inc. in a lawsuit against the Texas Racing Commission, TwinSpires told its Texas customers it could no longer take their bets.

Attorneys for TwinSpires said they would appeal the ruling, insisting the Texas law violates the Commerce Clause of the U.S. Constitution.

Horseplayers in Texas, understandably, were unhappy to be cut out by the 2012 law and recent court ruling. But Texas racetracks and horsemen were unhappy that they were receiving zero revenue from wagers made by Texas residents with ADW companies. They felt their customers were being poached.

There are three kinds of U.S. states when it comes to advance-deposit wagering: 1) those states which have specifically authorized ADW and may have guidelines for revenue sharing among the ADWs and in-state horsemen and racetracks; 2) states that have not specifically authorized ADW but that do not prohibit the practice (these are “gray” states because the law is neither black nor white when it comes to ADW); 3) states like Texas and Arizona where it is specifically against the law.

ADW companies are more profitable in “gray” states because there is no revenue-sharing model. As horseplayers in a “gray” horseracing state gravitate from racetracks and off-track betting sites to ADWs, tracks and purses suffer.

Let’s use Texas as an example.

Over the course of one year, let’s say a group of Texas residents bets $100 million at Texas tracks on simulcast races from out of state. If the track pays 3 percent for the signal and the takeout is 20 percent, that’s $17 million going to racetrack operations and purses in Texas.

If those same Texas bettors had bet $100 million through an ADW company, none of the revenue would stay in Texas. It would go to the ADW company. Let’s say it’s the same 20 percent takeout minus the signal fee, which we’ll estimate at 7 percent for an ADW, since they pay more than a brick-and-mortar facility. That’s 13 percent or $13 million to the ADW for facilitating a bet.

There are many states like this, where local tracks and horsemen get nothing from ADW wagering. So, while it was not fair to Texas horseplayers to pull the rug out from under them, it’s been equally unfair to Texas horsemen and racetracks to have the flow of dollars leave the state.

Texas racing is at the proverbial crossroads. It is surrounded by casino states – New Mexico, Oklahoma, Louisiana and Arkansas – where racing and breeding benefit from other forms of gambling. The legislature has steadfastly refused to expand distribution of legal pari-mutuel wagering while permitting a state-run lottery to sell tickets at countless locations throughout Texas.

The horse is a big part of Texas. Horseracing and horseplayers, on the other hand, are being treated like second-class citizens.

New to the Paulick Report? Click here to sign up for our daily email newsletter to keep up on this and other stories happening in the Thoroughbred industry
  • TJS

    Very well written. Texas is vital for this industry going forward. I am hearing good things about this next session. We hope.

    • David

      You heard wrong.

      • Kilroy Was Here

        David is right.

  • Battler

    Yes but the tracks receive 7 percent of the whole population’s handle. For 15 years, tracks have been complaining about customers leaving their track, instead of concentrating on the millions of people around the world, who now have access to your product, every minute of the day every day. The only legalized gambling on the internet (with the exception of poker in Nevada) is HORSE RACING. Will somebody take advantage of that fact, instead of whining about not being able to charge $3 for parking, and $5 for a beer. And the great state of Texas in all their wisdom, as taken away the only advantage that horse racing has left (besides it’s the greatest game ever played), and all these states have made it a headache to bet. How much extra revenue would be generated if you could bet the Kentucky Derby (and other races) on Facebook or with your Amazon account? Innovations like that are what tracks and states should be discussing, not pissing and moaning about the past.

  • http://www.praxacademy.com Rothbardian

    Good article. Texas has tons of potential, it just depends where the government wants to take it. Race track casinos would almost certainly put these tracks on a level playing field with the surrounding states.

  • Concerned Texas Horseman

    Ray,
    This article was very well written and contained good and correct facts. The only thing keeping it from a perfect “10″ is the last sentence. Texas is not treating horseracing as second class citizens it is trying to keep revenue generated in Texas going in the direction to support the very industry it is generated from. As for horseplayers, I guess you could say that states that don’t have legalized casinos treat slot machine players like second class citizens because they don’t have slot machines on every street corner like they do in Vegas. With that example in mind I don’t think Texas is treating horseplayers like second class citizens.
    Living in Texas and being in the racing industry I know of people who live close to the tracks and still used Twin Spires to wager from home. (sadly some of them were even horse owners and trainers) They did not know that their wagers were not supporting the industry in Texas and with all the rebate and bonus money ads they would see on the web it was hard for them to pass up the ADW offers, which are easy for the ADW companies to make because with little overhead and a huge profit margin you can do those sort of things. It is a shame that the CDI’s of the horseracing world only care about money and not the industry in a whole but I was told from a young age and on that greed is a very, very nasty and contagious habit.
    Anyway…..thanks for the insightful article and hopefully it educates those that are all up in arms because their Twin Spires accounts got closed. I’ll score the article a 9.5.

    • RayPaulick

      By saying Texas is treating horseracing as a second-class citizen, I am saying state legislators are not giving racing the tools it needs to succeed, whether it’s approval of OTBs or a law that permits ADWs and requires that a portion of revenue stay in the state. Movement of horseplayers from the tracks to ADW has not grown the business–it’s shifting dollars and bringing in a new partner to get a cut of revenue.

      • Concerned Texas Horsmen

        Therein lies the problem. Legislators in Texas have nothing to gain from passing any type of OTB, ADW or Racino bill. Texas is doing fine economically so why risk their political future by passing a “risky” gaming bill when state revenue is not needed. Trying to get Texas legislators to agree on something like this like getting U.S. House and Senate to agree on Obamacare. And we all have seen how that is working out.

        • J_W_C_NM

          The entrenched special interests, horse owners, are using legislators to protect their turf. How dare a Texan bet on a horse outside of the owners approved betting network, thus assuring what they perceive as their fair share of the handle. The same thing is happening in the automobile business. Tesla is trying to sell their cars directly to consumers instead of through a network of dealers. The dealers are in a life and death battle to prevent Tesla’s business model. Texas is kind of schizophrenic. They fancy themselves as swash-buckling free marketeers, while in reality, their politics is just as corrupt, and their capitalism is just as crony as any of the blue states.

          • Brian Schartz

            By that logic, why not just scrap pari-mutuel completely and turn over wagering to bookmakers? Cut the racetracks and horsemen out completely in the name of unbridled capitalism.
            As much as I agree with your concluding comments regarding Texas and its own brand of crony capitalism, the racing industry only works if there is a revenue source dedicated to the business. In this country, it is mostly supported with pari-mutuel wagering dollars, and any actor in the ecosystem who poaches handle without paying a fair share for the production of the event is going to ultimately kill the game. The Tesla comparison breaks down because Ford/GM/Tesla are not dependent on the players in the distribution ecosystem for their operating dollars.

          • RayPaulick

            Tesla makes cars, right? ADW companies don’t make the product we’re talking about here, they distribute it and facilitate bets…kind of like PayPal facilitates the sales of products.

          • J_W_C_NM

            The analogy wasn’t about who makes what, but
            about government run protection rackets encouraged and financed by special
            interests. The automobile dealer association is coercing the government to
            exercise legal force to prohibit Tesla’s direct to the consumer business model
            so the dealers continue to get their cut of the sales price (and parts and
            repairs). The horseman associations coerced the government to prohibit Texans
            from exercising their free choice of commerce, in this instance wagering on out
            of state races, in an effort to protect their own little racket. It’s one thing
            to get a modest rake from the handle, both local and ADW, it’s quite another to
            prohibit “free” Texas citizens their choice of business. The racing industry
            isn’t going to grow handle if they continue to erect roadblocks preventing the
            free exercise of wagering.

        • Joseph

          Concerned,
          Your points make no sense – if the state is going to remain in the business, then do it right. They don’t seem to mind the lottery revenue they so shamelessly advertise while pretending to be against the evils of gambling – what a hypocritical joke.You seem to be arguing for some antiquated system put in place when Texas thought they’d have standing room only crowds at every race day card. Brian Schartz gets it – simply treat every wager as if it was placed at the track and let the AWDs and tracks negotiate the revenue splits. Doesn’t everyone win if they split a portion of a pie vs no pie at all? This isn’t rocket science, it happens every day in businesses across the country. But, if the law itself makes it illegal, nobody wins other than the out of state interests and maybe the religious right who can sleep at night thinking they have saved us from ourselves.

    • J_W_C_NM

      Concerned Texas Horseman are so greedy and selfish that they want to limit, using the full force of the law, the individual liberties of their fellow Texans to freely pursue and engage in commerce of their own choice.

  • David

    TVG’s original business model called for “Source Market Fees” to be paid to “states” where the bet originated. Problem was in the case of Texas (and others) the devil was in the detail of just who to send the net proceeds; and, even if you had an addressee, that individual/organization had no idea on how to whack it up. As we know “source market fee” fell into antiquity now and was last seen in the track fees paid (by ADW Operators)for inter-state wagering/video rights. The Feds/DOJ will stay out of the thing except when a state (like Texas) decides to build a wall around its borders and/or there a lot of money involved. Texas’ actions (and prior inaction) are based on some parochial mentality of having their own Licensees do there own little micro systems should the keeper of the keys in the State House ever think there enough in it and political cover to allow it. It’s Texas for Christ’s sake, who cares?

  • Lina_TX

    There’s hardly any racetracks in Texas to go to and bet. Even if you live in Dallas or Houston or San Antonio, how often do you think people would spend 45 minutes plus on the freeway to get to the “local” track, and then again going home? Texas is going after peanuts, when there’s a lot more money to be made by coming to an agreement with places like Twinspires.

  • Brian Schartz

    Nice article, but only scratching the surface of the dysfunction of the racing industry in Texas.

    Having lived in Texas for a few years about a decade ago, I got started as a breeder in Texas. Despite all the promise for racing in the state, I have slowly become disillusioned with the trends there. Since I never bought a farm when I lived there, I have done the financially smart thing over the last few years and slowly transitioned the breeding and racing stock to better places. The inability of Texas to move the industry into the 21st century is stunning.

    For anyone who will listen, I have been promoting not just the outright legalization of ADW’s in Texas, but a system that requires any ADW wager in the state to be treated as if it is placed on premises of one of the racetracks. Only in that way can all the key stakeholders of the live racing product (horsemen and operators) be made indifferent between ontrack and ADW wagering and avoid the poaching of handle dollars by companies like CDI or TVG (and I say that, ironically, as a CHDN shareholder). Frankly, I am stunned that any racing state does not “close” their ADW market to racetrack owned/controlled platforms inside their jurisdiction. This gaping hole is being exploited (most notably in the GRAY states noted above), and it seems relatively simple to stop. After putting these ideas in the hands of people with access to the policy makers in Texas, I have watched legislative session after session pass in Texas without any progress on this or any other self-help (ADW, OTB, Instant Racing) for the industry.

    I have come to believe that this is NOT an issue of ADW as an expansion of gaming in the state, but more likely the issue of some vested interest who stymies progress on this issue. From what I understand, the QH industry is not on board with ADW’s– thinking that nothing but slots will save the industry. It also does not help that there is a lot of QH money in unsanctioned and VERY dirty match racing (some of the money making it into the hands of some unscrupulous vet clinics that apparently have a lot of stroke) in Texas. Since I am so far away, I am not sure of the particulars of things, but it matters little as I have run out of patience. I also see the roster of the directors of some of the thoroughbred industry’s advocacy groups (notably the TTA) populated by vets whose interests are not necessarily aligned with thoroughbred breeders or horsemen. Whatever the reason might be, it is maddening to see the industry fail to make any headway, and most horsemen can simply vote with their feet. Whoever is determined to be king of Texas racing may soon find themselves reigning over nothing much.

    As much as I want to be loyal to the fine people who I have worked with in Texas, there comes a point where you have to say enough is enough. My three 2yo TX bred fillies got on a van last week to come to my trainer in MD… bottom level MCL in the Laurel book run for more than MSW in Texas. Two years ago, I had five mares in Texas and one in the Mid-Atlantic, and next year, those numbers will be reversed. Sad as it will be for a large, populous state with an affinity for gambling and horses to lose its industry, only fast action is capable of saving things. At this point, I, like many others before me, can no longer afford to wait.

    • Tired of the BS

      As you pointed out, you have only scratched the surface. QH’s won’t support anything but slots, but then they get the TB organization to put their head in the sand and not openly engage in additional strategies. A lot of dirty hands fighting for
      what will be nothing in the end if the path is kept.

      Most positive changes have been the acquisition of the tracks by profit driven companies, not simply partnerships with fractional interests that spidered through the industry. Global, Penn, Pinnacle have to run businesses and make money, not wait
      for the day when slots pass, and “people” cash out. This should do more to force the hand of legislators when they realize that these companies will simply shutter and abandon if they cannot get things done. Good ole’ boy way could and should be on the way out. Key will be for horsemen to be sure they have their interests being looked after. Unfortunately, that won’t happen with the current organizational
      structures in place.

      Like you Brian, the dysfunction became too much. Moving east was the only wise choice.

  • truth

    Too many crooked politicians in Texas, including the Gov., hiding behind churches until they get paid off.

    • AngelaFromAbilene

      You got that right!

  • AngelaFromAbilene

    I came back to Texas in ’93 after they FINALLY passed pari-mutual. It was pretty good in the beginning but now, racing is in the toilette and has been for quite awhile. Our legislature panders to the Bible thumping holy rollers and to hell with the rest of us. We no longer participate in the Texas Bred program, instead we run off the farm and haul in to Oklahoma & New Mexico. Haven’t run a horse in Texas since 2002.

  • ryan driscoll

    Now even if TwinSpires wants to pay, which they should, their share to the Texas Horsemen, they can’t because of the state laws. Instead, thousands of horseplayers, like myself will gradually lose interest in the game. I’m not going to drive a hour to Lone Star at a cost of about $25 in gas and tolls and then pay $10 dollars to get a “decent” place to sit more than maybe twice a year. Sure I’ll tune in to watch the big races, but with no way to make a bet, I won’t go out of my way to catch it live. Then watching the big races on replay will lead to maybe not watching them at all and then one day I wake up and realize I’m no longer a racing fan. Way to go geniuses.

    • Concerned Texas Horsemen

      So your rather have a state let an out of state company continue to do illegal business to the detriment of the legitamate businesses located within that same state? If the tracks in Texas set up their own ADWs they would lose their licenses but you’re saying to benefit YOU the state should go ahead and let you wager via Twin Spires. I’m not against the ADWs by any means if and only if they participate and support the jurisdictions they are invading to get their wagers, but until it is legal (which it is not in Texas and quite a few other states that Twin Spires horns in to) then ADW companies should not be allowed to accept wagers. Due to the fact they did not have to pay anything to the Texas racing industry Texas was a cash cow for Churchill and they filed that lawsuit to try and keep that cow crapping cash. Not sure what kind of business you are in but I don’t think you would be happy if you had to pay taxes and/or fees to your local jurisdictions for the right to conduct that business but some other company could come in and do the same business and not have to pay any of those same costs.

      • kyle

        In case you haven’t noticed it’s the 21st century. Inprisoning the Texas horseplayer in North Korea like isolation is probably not a growth strategy. How are things working out down there? Got good racing and a healthy game? I honesty wouldn’t know because despite playing 4000-5000 races per year from tracks of all regions I can’t remember the last time I bet or even looked at a race from Texas. But then again, you obviously don’t think I should be betting on Texas racing because I don’t live there. Interesting aside, we’ve actually considered it but would never move there because of this issue. To sum things up, protectionism will not work. Again, how is it working? It isn’t working well for horsemen, is it? We know it’s not working for players and the game as a whole, but what do you care. Let ‘me bet Lone Star. Thanks Marie.

        • Anton Chigurh

          Nicely done.

      • ryan driscoll

        Thanks for the attack CTH. My first statement is TwinSpires should have paid the Texas Horsemen. Instead of working out ADW legislation that benefited the horsemen, the ADWs and the racetracks, you just pushed to pull the plug on the racing fans in Texas. Welcome to 1982.

  • Wamman

    I’m sure the majority of Texas horse players have found their way to offshore sites that take horse bets from every where and the State continues to lose revenue, real brilliant Texas legislature.

  • Anton Chigurh

    Funny how the small govtTexans are just fine with shutting down the federal govt. but just love the big bad state govt protecting them from the evils of gambling. Paper tigers.

    • Killroy Was Here

      Your statement has no merit and is irrelevant. The Texas legislature is controlled by a small group that does not represent the views of the majority of Texans on this issue. Our state senator represents the district that contains Lane’s End Texas and he is a leading member of the anti-gaming group. Same mindset elsewhere explains why chicken farming is the number one ag enterprise in KY.

      • Anton Chigurh

        I can’t disagree with that. Our legislature is the biggest collection of morons I can think of. It’s kind of sad really. We should have the best breeding program and it would be easy to do but the hayseed timebombs are jealous and won’t give it to us just for spite.

  • Mike

    Probably one of the best kept secrets in the State of Texas is that there is a full blown CASINO operating in Eagle Pass , it only benefits the Indians that own it. The politicians just ignore it.

  • Tres Abagados Stupidos

    I like the way the people who comment on here figure that getting legislation passed is like clicking your heels and saying “there’s no place like home”. It is not that simple a process. Almost everyone criticizing what is going on in Texas has the underlined tone of “What the hell….let’s just make ADW legal!!!” It doesn’t work that way. Also consider one other thing. ADW is legal in Montana. You have to be licensed by the state racing commission and pay a source market fee. I dare anyone on this forum to contact the Montana Board of Horse Racing and ask how much Twin Spires has paid in source market fees over the years. (Ray, maybe something you can look into from a journalistic stand point) From what I have been told it is NOTHING!! So even if the law is in place does not always mean the greedy folks at CDI will abide by it.

  • Kilroy Was Here

    It is worth noting that many of the lobbyist and “religious” organizations are financially supported by gambling operations in neighboring states. Polls have also shown that over 70% of the Texas voting population support expansion of legalized gambling

  • Mimi Hunter

    Texas is the ‘Lone Star State’ – with the emphasis on LONE.

  • Fred A. Pope

    It seems the tracks and horsemen in Texas are using a business model that favors taking bets on out-of-state races instead of a model that favors their own product.

    Yes, Texas tracks make 17% from bets their customers place on imported races, but that reciprocating deal means they only get 3% from tracks in 32 other states on their product.

    When you operate a track and tell your racing secretary the racing product he puts together has no value, then it is a self-fulfilling prophecy that Texas races are not good and not popular with off-track bettors.

    Funding Texas races by taking bets on out-of-state races is no different than funding them by taking casino bets, or from oil revenue. They have to stand on their own.

    There are ways to make Texas races popular. One of the first is to change the business model and trade with the other tracks 50-50. They want your customers to bet on their races, leverage that and when your racing secretary puts on a good show you will make more money on your product than from bet taking. A good show will also bring people to the tracks. Texas racing can have a future.

  • fb0252

    Seems to me horseracing needs an umbrella organization to support and make sense of these difficulties in regional markets. We have/had that in the NTRA except NTRA leadership has steadfastly avoided any national strategy that involves making sense of and resolving regional difficulties. And we have the myopics at Churchill that refused NTRA support. Never too late to change this stuff. In the mean time there’s HBPA Texas herding cats.

  • Birdy2

    Great piece, Ray. As one who ran in Texas, I’m here to say that what destroyed us is the religious right who rule this ridiculous state. It would take a year to tell the story. One thing I’ll never forget is walking into a horsemen’s meeting at LSP to discuss race dates in 2010. As we walked in, frontsiders handed us bottles of Lone Star Water and maps to Arkansas and Louisiana. No, I’m not making this up. Sam Houston has one of the finest turf courses anywhere — and a grandstand with all the ambiance of a Greyhound Bus station. The restrooms and dorm rooms on the backside at Sam Houston? Beyond gross. The base under the dirt at LSP? Ask Shubeck and his silk stocking lawyers about that one. Between the Baptists and bad management and tolerance of cheaters (as long as they fill stalls), not to mention TxRC “investigators” who can’t find their own butts much less a tack room full of unlabeled jugs of clenbuterol on a leading trainer’s shedrow, racing in Texas is… well, it’s impossible to run clean in this state, and why would anyone be here if he had a choice to be elsewhere?

  • Max Mathew

    Who owns the hand that feeds the texas horsemen? Yes, its the horseplayer. Dont bite the hand that feeds you. If there wasnt a single racetrack in Texas would we even have this issue? I will

  • James Newberry

    We thought we had finally come to our senses in Texas when horse racing started in the early 90′s. I live in the Lone Star area, but I seldom go out because the facility has become a restaurant with a racetrack. The big screens have golf, football, basketball, etc. on the them, not racing.
    I will not sit in the smoky pits of the simulcast area and they do act like they are the only game in the area. $5.50 for a beer is ridiculous. I like to go the track, drink a few beers, get involved with the day’s cards and enjoy myself. This is impossible at Lone Star. I am disabled, they are short on handicapped parking, but the City of Grand Prairie has several parking places that are not used often; the big wheels line the No Parking and Fire Zone areas with their expensive cars and the other day I had to wait to just get through the area because one of these autos was blocking the road and the valet parking attendant was having a conversation with his customer. I missed a race I wanted to bet because of it.
    Not customer oriented at all; only game in town; smoky smell all over and today, the Risen Star and Fountain of Youth are being run so I guess I’ll just have to bet off shore.

    Twin Spires is honest, and provided a great service, much better than going to Lone Star!

Twitter